The Foreclosure Crisis and Community Development: Exploring the Foreclosed Stock in Hard-Hit NeighborhoodsHousing Studies, forthcoming

Ingrid Gould Ellen, Josiah Madar, and Max Weselcouch
03/06/2014

As the foreclosure crisis continues, many communities are faced with a glut of properties that have completed the foreclosure process and are now owned by banks or other mortgage lenders. These properties, referred to as “real estate owned (REO),” often sit vacant for extended periods and, recent studies suggest, depress neighboring property values. They also impose significant costs on local governments, which must try to address the risk of crime, fire, and blight that vacant buildings pose. In addition, many worry that REO properties sold to unscrupulous short-term investors hasten neighborhood decline.

In this article we shed new light on the “REO problem” by studying the stock of REO properties at the neighborhood level in three urban areas: Fulton County, Georgia (which includes Atlanta), Miami-Dade County, Florida, and New York City. Using a combination of longitudinal administrative data sets on foreclosure filings, auction sales, and property transactions provided by local government sources, we identify every property transfer into REO ownership in recent years and all subsequent transfers of these properties. To explore the ongoing neighborhood and community development challenges, we divide census tracts into four groups based on their concentrations of REO properties as of the end of 2011. We then compare these neighborhood types across several dimensions. Because we use a uniform methodology for all three areas, we are also able to compare neighborhood groups across jurisdictions with the metrics we calculate.

We find several neighborhoods in Fulton County and Miami-Dade County with extremely high concentrations of REO properties as of the end of 2011, including some tracts with more than 100 REO properties. In New York City, however, REO concentrations are generally much lower, and no census tract had more than 12 REO properties. In all three jurisdictions, the neighborhoods with relatively high concentrations of REO properties are generally not the most distressed areas of their regions in terms of poverty and unemployment, but are still high-poverty and potentially vulnerable. Moreover, they are disproportionately black, highlighting the uneven impact the foreclosure crisis may be having on communities. Importantly, we find that that the number of REO properties in the hardest-hit neighborhoods of each area was declining as of the end of 2012 (or 2011, our latest year of data in Miami-Dade County), generally in line with the countywide or citywide trend in REO inventories, and that investors did not account for an appreciably higher proportion of purchasers of REO properties in the hardest-hit neighborhoods. Furthermore, few of the properties that were purchased by investors appear to have been “flipped” within a short period. On the other hand, we also find that those REO properties that remained in these cities as of the end of 2012 or 2011 (including those in hard-hit neighborhoods) had been in REO for a longer duration than was typical one year earlier, so the composition of the REO stock may shifting towards more problematic properties. Additionally, in Fulton County’s hardest-hit tracts REO properties made up about 40 percent of all sales in 2012, so were likely still exerting significant downward pressure on housing prices. Finally while the National Stabilization Program (NSP) may be improving neighborhoods in other ways, we find that only a negligible share of the REO sales in the hardest-hit tracts of Fulton and Miami-Dade Counties in 2010 and 2011 were to non-profit entities and developers using NSP funds.

Do Housing Choice Voucher Holders Live Near Good SchoolsJournal of Housing Economics 23(1), 2014: 28-40. http://dx.doi.org/10.1016/j.jhe.2013.11.005

Ingrid Gould Ellen, Amy Ellen Schwartz, and Keren Horn
03/06/2014

The Housing Choice Voucher program was created, in part, to help low income households reach a broader range of neighborhoods and schools. Rather than concentrating low income households in designated developments, vouchers allow families to choose their housing units and neighborhoods. In this project we explore whether low income households use the flexibility provided by vouchers to reach neighborhoods with high performing schools. Unlike previous experimental work, which has focused on a small sample of voucher holders constrained to live in low-poverty neighborhoods, we look at the voucher population as a whole and explore the broad range of neighborhoods in which they live. Relying on internal data from HUD on the location of assisted households, we link each voucher holder in the country to the closest elementary school within their school district. We compare the characteristics of the schools that voucher holders are likely to attend to the characteristics of those accessible to other households receiving place based housing subsidies, other similar unsubsidized households and fair market rent units within the same state and metropolitan area. These comparisons provide us with a portrait of the schools that children might have attended absent HUD assistance. In comparison to other poor households in the same metropolitan areas, we find that the schools near voucher holders have lower performing students than the schools near other poor households without a housing subsidy. We probe this surprising finding by exploring whether differences between the demographic characteristics of voucher holders and other poor households explain the differences in the characteristics of nearby schools, and whether school characteristics vary with length of time in the voucher program. We also examine variation across metropolitan areas in the relative quality of schools near to voucher holders and whether this variation is explained by economic, socio-demographic or policy differences across cities.

Microcredit and SME finance are often pitched as alternative strategies to create employment opportunities in low-income communities. So far, though, little is known about how employment patterns compare. We integrate evidence from three surveys to show that, compared to Bangladeshi microcredit customers, typical SME employees in Bangladesh have more education and professional skills, and live in households that are notably less poor. SME jobs also require long work weeks, clashing with family responsibilities. The evidence from Bangladesh rejects the idea that SME finance more efficiently creates jobs for the population currently served by microcredit.

Medicaid’s transformation since its inception rivals the biological changes of metamorphosis, and that process is not yet over. Past metamorphoses are the change from a small program with eligibility linked to the states’ cash welfare benefits to one with national eligibility standards covering many not receiving cash benefits, from a traditional fee-for-service payment program to one dominated by capitated managed care arrangements, and under the ACA to a widely accepted component of a national system for near universal insurance coverage. An analysis of the forces behind these significant changes suggests that future transformations are likely, and four potential scenarios are presented and assessed.

The Impact of Microcredit on the Poor in Bangladesh: Revisiting the EvidenceJournal of Development Studies

David Roodman and Jonathan Morduch
06/03/2013

We replicate and reanalyse the most influential study of microcredit impacts (Pitt and Khandker, 1998). That study was celebrated for showing that microcredit reduces poverty, a much hoped-for possibility (though one not confirmed by recent randomized controlled trials). We show that the original results on poverty reduction disappear after dropping outliers, or when using a robust linear estimator. Using a new program for estimation of mixed process maximum likelihood models, we show how assumptions critical for the original analysis, such as error normality, are contradicted by the data. We conclude that questions about impact cannot be answered in these data.

About half of the world’s adults lack bank accounts. Most of these “unbanked” are deemed too expensive to serve, or not worth the hassle created by banking regulations. But what may be good business from a banker’s perspective isn’t necessarily what’s best for society. The inequalities that persist in financial access reinforce broader inequalities in the distribution of income and wealth. This is the opening for microfinance and also its challenge. Microlending has been sold as a practical means to get capital into the hands of small-scale entrepreneurs who can then earn their way out of poverty. The idea appeals to our impulse to help people help themselves and to our conviction that bottom-up development depends on the embrace of the market. By eschewing governments and traditional charities, the sector promises to sidestep the bureaucracy and inertia that have hobbled other attempts to expand the opportunities of the poor.

In this paper, we introduce the Socio-Economic Empowerment Assessment (SEEA), a qualitative assessment that uses an ecological framework to better understand the psychological impact of poverty and financial insecurity. The assessment is designed as a practice tool and can be administered in a number of clinical settings, including agencies most likely to serve low-income populations. It can also be included as part of financial literacy or management sessions that social work agencies may offer. This paper explores how SEEA can be used to help develop specific and appropriate interventions that move low-income people and others toward economic empowerment. We examine the literature on financial literacy programs and theories on behavior regulation and social relationships related to consumption. A case study using an integrative assessment approach is included as an example of SEEA implementation.

We use experimental measures of time discounting and risk aversion for villagers in south India to highlight behavioral features of microcredit, a financial tool designed to reduce poverty and fix credit market imperfections. The evidence suggests that microcredit contracts may do more than reduce moral hazard and adverse selection by imposing new forms of discipline on borrowers. We find that, conditional on borrowing from any source, women with present-biased preferences are more likely than others to borrow through microcredit institutions. Another particular contribution of microcredit may thus be to provide helpful structure for borrowers seeking self-discipline.

Do interest rates matter? Credit demand in the Dhaka SlumsJournal of Development Economics, 97(2): 437-449

Dehejia, Rajeev; Heather Montgomery and Jonathan Morduch
03/01/2012

“Best practice” in microfinance holds that interest rates should be set at profit-making levels, based on the belief that even poor customers favor access to finance over low fees. Despite this core belief, little direct evidence exists on the price elasticity of credit demand in poor communities. We examine increases in the interest rate on microfinance loans in the slums of Dhaka, Bangladesh. Using unanticipated between-branch variation in prices, we estimate interest elasticities from -0.73 to -1.04, with our preferred estimate being at the upper end of this range. Interest income earned from most borrowers fell, but interest income earned from the largest customers increased, generating overall profitability at the branch level.